There are only two risky assets A and B with expected returns 7 = 18%, FB...

  

Transcribed Image Text:

There are only two risky assets A and B with expected returns 7 = 18%, FB = 14% and standard deviations = 15%, = 12%. The correlation coefficient between the returns of the two assets is 0.5. (a) Solve for the minimum-variance portfolio of the two risky assets, as well as the expected rate of return and standard deviation of the portfolio. (12 marks) (b) When risk-free asset is available at rate 6%, solve for the tangency portfolio. (4 marks) (c) Discuss how the returns of the portfolios derived in correlated. (a) and (b) are (4 marks) There are only two risky assets A and B with expected returns 7 = 18%, FB = 14% and standard deviations = 15%, = 12%. The correlation coefficient between the returns of the two assets is 0.5. (a) Solve for the minimum-variance portfolio of the two risky assets, as well as the expected rate of return and standard deviation of the portfolio. (12 marks) (b) When risk-free asset is available at rate 6%, solve for the tangency portfolio. (4 marks) (c) Discuss how the returns of the portfolios derived in correlated. (a) and (b) are (4 marks)